German investor uncertainty about equity markets hits five-year high

Uncertainty among German investors regarding the direction of equity markets stands at a five-year high, leading over one third of them to save less in the second quarter than at the start of the year.

The prevailing uncertainly about markets may explain the reluctance of the German public to put money into equity funds.

Some 17% of the 500 financial decision makers in German households polled admitted to having no idea which way equity markets will trend in the next six months-8% more than in the previous quarter.

This is the highest level of uncertainly since the third quarter of 2007. At the same time, the proportion of participants with an optimistic outlook has fallen by 5% to 23%.

“The uncertainly of investors is no great surprise after the recent events of the European crisis,” said Union Investment managing director, Daniel Günnewig.

He is convinced that “only when the fundamental and structural problems have been solved will the people slowly begin trusting the capital markets once again.”

At the same time, respondents’ outlook for fixed income investments is also poor, according to the study conducted in May and commissioned by Union Investment.

Nearly one in five participants (19%) expects a further fall in interest rates, which is bound to have a negative impact on the high proportion of fixed income holdings in German portfolios.

German Bund yields remain below 1%, and with even moderate inflation, investments in government bonds can currently only bring losses, even if the rates remain at their current level – which is the expectation of 57% of the survey participants.

However, the vast majority (87%) of private German investors expect inflation to rise, which would put further pressure on bond holdings.

However, Günnewig believes these inflation fears are largely unfounded.

“A good indicator of upcoming inflation is an increase in the gold price, but it has sunk by over 16% over the last few months from its all-time high of $1,900,” he commented.

The study has also highlighted that the German public’s propensity to save has decreased last quarter, due to the low rate environment on the one hand, and the uncertainty over the situation in European markets on the other hand.

Over one third of participants (34%) is now saving less per month than in the previous quarter. Only 16% are looking to put more money away for a rainy day. Most investment options are losing attractiveness in the eyes of investors, with the only exceptions being fixed deposits and overnight funds, which are still seen as attractive by 42% and 51% of investors.

The findings from Union’s survey come at the same time another study of German citizens, conducted by Forsa on behalf of German fund trade body the Bundesverband Investment und Asset Management (BVI) found every fourth respondent owns an investment fund.

Of the 2,000 participants in this study, 80% are making investments for their future pensions, and for 70%, investment funds are predominantly long-term investment vehicles.

The lack of general confidence by private fund buyers may, however, be confounded by German consumers.

An index of German consumer confidence compiled by market research institute GfK is showing tentative improvements. A rise in income expectations in June was substantial, and the willingness of Germans to buy improved slightly.

Between June and July, the index increased from 5.7 to 5.8.

Union’s Günnewig believes that this positive propensity to consume balances out the low economic expectations.

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